Awareness

From Next Month, Govt To Track Citizens’ Social Media Posts To Nab Tax Evaders

The Logical Indian Crew

July 31st, 2017

SHARES

Courtesy: Bloomberg | Image Credit: qzprod, Amarujala

The NDA government has announced that it is all set to launch Project Insight from the next month. The project is aimed at “strengthening the non-intrusive, information driven approach for improving tax compliance”.

The 1000 crore project involves the collection of a massive amount of virtual information procured from “traditional”sources like banks and also from social media sites. The aim is to match individuals’ spending patterns with income declarations so as to identify any citizen who might be paying too little or no tax.

Essentially, Project Insight enables the government to track citizens’ social media activity in order to track tax offenders. For example, when you post pictures of, say, your recent trip to Europe or China on your Facebook or Instagram, the Income Tax Department can juxtapose the same with your income tax declarations and tax history to find if you are involved in tax evasion or not.

Project Insight, which took seven years to build, will complement the world’s largest biometric identity database and India’s most ambitious tax overhaul aimed at making people pay their taxes and penalising offenders.

Tax compliance will rise 30% to 40% during the first phase of the project, Bloomberg reported. At the same time, there are several privacy and cybersecurity concerns associated with Project Insight.


Implementation to take place in three stages

The project itself will be implemented in three stages.

  1. The first stage – initially slated for a May 2017 release – will begin in August 2017. During this time all existing data (including credit card spends, property and stock investments, cash purchases and deposits) will be migrated to the new system and a central team will send postal or email blasts asking residents to file tax declarations. There will reportedly be no physical interaction. The tax department will reportedly be setting up a centralised processing centre for compliance management. It will handle preliminary verification, generation of bulk letters/notices and follow-up arising from information collated through Project Insight.
  2. The second phase will be launched by December this year. During this phase, data analytics will mine, clean and process the information. Individual spending profiles will be created and inquiries will be more targeted.
  3. In the last phase, which will go live around May 2018, advanced systems will be used to predict future defaults and flag risks.

The tax ministry’s “flagship project”

According to The Economic Times, Insight is the tax ministry’s “flagship project”. As of July 2015, the ministry has floated a tender worth over Rs 150 crore to buy data analytics software and the infrastructure that goes along with it, a person with knowledge of the matter told ET. The project is also expected to rank tax evaders based on the amount of tax that could be recovered, so that the authorities could go after the highest value targets first.

When seeking a talent pool for the project, the Directorate of Income Tax (Systems) said, “The project will integrate enterprise data warehouse, data mining, web mining, predictive modelling, data exchange, master data management, centralised processing, compliance management and case analytics capabilities.”

An official statement in 2016 said that Project Insight would play a key role in the widening of tax base and to track tax evaders. The new technical infrastructure was leveraged for implementation of Foreign Account Tax Compliance Act Inter Governmental Agreement (FATCA IGA) and Common Reporting Standard (CRS).

The government has contracted L&T Infotech Ltd (an arm of India’s largest engineering conglomerate Larsen & Toubro Ltd) to help build the network for Project Insight.


The Logical Indian take

Tax avoidance is a big issue in India, where only 3% of the country’s 1.3 billion+ population pays income tax. A major reason for this widespread trend of tax evasion is that too many Indians are simply too poor to pay taxes, but the more logical explanation is that India’s tax collection system is too flawed, its tax rules too complex, and its tax collection apparatus too corrupt.

As such, outright tax evasion – especially by the super rich and the upper-middle class – has become a major source of lost revenue for the government, which can utilise these funds for infrastructure, healthcare, education, defence and other sectors.

A March 2017 OECD study of 21 countries that used technology to detect tax fraud (“Technology Tools to Tackle Tax Evasion and Tax Fraud”) found that such methods made tax compliance cheaper and boosted government revenue.

Therefore, there is little doubt that infusing technology in the tax compliance process makes the process more efficient. According to Bloomberg, Project Insight could increase tax compliance by over 30% during its first phase.


At the same time, Project Insight offers two major concerns:

  1. Privacy
  2. Security

The privacy debate in India has been raging in the country’s top court for over a week. The government’s move of expand Aadhaar’s scope have met with stiff opposition from privacy activists. The Supreme Court is now mulling over whether the Constitution guarantees the right to privacy as a fundamental right to all citizens (it had ruled against this notion twice before).

The government has repeatedly stated that “citizens do not have a right to privacy under the Constitution”, and the apex court has said that the right to privacy cannot be “absolute”.

In the Digital Age, traditional definitions of privacy are dead. Not mandating privacy for citizens is regressive and dangerous. Every Indian deserves the right to keep to themselves their thoughts, ideas, expressions and identity – both online and offline. The government tracking a citizen’s vacation photographs seems both absurd and harmless, but the principle behind it – that of a citizen’s right to privacy in a democracy – is invaluable.


The routine data leaks of Aadhaar information from UIDAI prove that India’s cybersecurity is still novice. This state of shambles is true in the public and private sectors. In fact, Indian companies regularly lose a sizeable portion (sometimes almost a third) of their profits to cyberattacks. The two major ransomware attacks of recent weeks – WannaCry and Petya – India was among the top countries affected. As internet penetration in India expands, so do the cyberthreats. Presently, there is one cybercrime in India every 10 minutes – a number that only includes reported attacks so will invariably be higher, and a number that will only increase in the near future.

Even as the government pushes for a “Digital India” and adoption of cryptocurrencies, the sorry state of our digital defences paint a picture of woeful and dangerous unpreparedness.


The importance of preserving privacy and the dismal state of our cybersecurity should be kept in mind by the government. While there are benefits to gain from Project Insight, many threats lurk in the background too. The Logical Indian requests the government to beef up data and cyber security and explicitly define the limits of a citizen’s right to privacy. It should also clearly explain how a citizen’s social media activity will be tracked, where this information will be stored, how this information will be used, by whom will it be used, and for how long will it be in possession of the government.

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